President Biden recently made it clear that what we're seeing play out in the economy now is the result of "Bidenomics." The current expansion has defied the constant predictions of economic gloom. Every other day, it seems, some firm announces a new battery plant or semiconductor facility for the United States as a result of incentives from either the CHIPS Act or the Inflation Reduction Act. So what's next? How can we be confident the plants will be productive? And what is the Bidenomics view of global trade? To learn more, we speak with Jared Bernstein, the head of the White House Council of Economic Advisors. We discuss the key pillars of the White House economic agenda, and how these ambitious policy measures are being implemented. This transcript has been lightly edited for clarity.
Key insights from the pod:
Why now is the time to tout the success of Bidenomics — 3:36
How long will the gains from public investment be sustained? — 5:36
Will all of the plant openings turn into competitive goods? — 9:27
The Bidenomics theory of international trade — 16:12
What's next on the policy agenda? — 22:08
How President Biden thinks about the economy — 25:12
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Joe Weisenthal: (00:10)
Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.
Tracy Alloway: (00:15)
And I'm Tracy Alloway.
Joe: (00:17)
Tracy, so we're recording this Friday, June 30th. It really felt like this week a bunch of people kind of declared victory on the economy or suddenly like there's been something in the water, you know, like they put LSD in the water or something. People are feeling good. There's a good mood vibe.
Tracy: (00:32)
Last year we were all worried about the ‘vibecession,’ so the idea that all these survey based measures were turning down even while activity was still relatively robust. What are we going to call this one?
Joe: (00:44)
The vibe...spansion? I don't know.
Tracy: (00:47)
Vibe expansion?
Joe: (00:48)
We need to get Kyla Scanlon back on to come up with a term. But yes, the vibes shifted somehow this week.
Tracy: (00:54)
Yeah. And it's interesting because a lot of the trends that we saw last year, you know, very low unemployment, still some inflationary pressures. Housing market, relatively robust. Those have just continued this year. So not a lot has changed, but it definitely feels like people are more optimistic.
Joe: (01:15)
Right. Exactly. A bunch of people declaring that all the recession calls are null and void. The vibecession is over. Noah Smith had a blog saying that, and I think most notably the White House sort of chose this week as a week to stamp the success of what they're calling ‘Bidenomics.’ And they're basically, you know, we had the President and they're sort of saying, “yes, this is the economy that the White House has planned for” and designed and envisioned. And so I think that's a sign they're kind of like in a position where they want to brag a little bit. They want to talk about it.
Tracy: (01:45)
Yeah. And it is interesting in and of itself that the White House feels comfortable enough to choose this moment to kind of put a timestamp on the idea of Bidenomics and declare it an early success.
Joe: (01:58)
Yeah. And so, I mean obviously we know some big components of it and there are these really sort of extraordinary, you know, industrial policy-like strategies, the CHIPS Act, which we talk a lot about on the show. The Inflation Reduction Act, the reshoring, domestic investment, all of these things sort of ongoing fiscal support for the economy, putting money in the hands of workers, etc.
And you know, again, the numbers today seem solid. And so then I guess the question is, okay, what is the big coherent thought and where is it going next? Because we're getting the investments, we see the factory announcements all the time, but then what's next for all that's being built?
Tracy: (02:35)
Why now and what's next?
Joe: (02:37)
Well, to learn more about what is Bidenomics and what is next, we are going to be speaking with uh, Jared Bernstein. He is the head of the White House Council of Economic Advisors. Jared Bernstein, thank you so much for coming on Odd Lots today. Huge week obviously...
Jared Bernstein (2:49):
Wait, wait a second. Am I the perfect guest or not?
Joe (2:57):
We have the perfect guest
Jared: (02:59)
Thank you. That's what I wanted to hear.
Joe: (03:01)
Yeah. Someone told us recently how devastated they would be if they got introed without the perfect guest mention. You are the perfect guest.
Jared: (03:09)
I mean, once you start saying that, it sort of becomes like…
Tracy: (03:12)
Yeah, we have to say it every time.
Jared: (03:13)
I didn't get it.
Joe: (03:14)
When we don't say it, it's never intentional. Huge week obviously. Why now? You know, the economy is hot and it's been hot for a while. Inflation is elevated labor market tightness. Why was this the week that President Biden and the White House chose to sort of declare that Bidenomics is working?
Jared: (03:36)
Well, I think the simple answer is that there's a lot of evidence that it is. And in terms of the broader economy, you know, I think that there's headwinds and there's tailwinds. And I think one of the things that I know — I listen to you guys all the time — and I really enjoy what you do, but I think all of us here in this business get very focused on the news of the day. The news of the minute, the news of the week, you know, the market asset that's in trouble or the market asset that's soaring, right? The supply chain that's broken, the dwell time in some port somewhere.
All of that's critically important to all of us. And you two do a great job of reporting on that. But, you know, Bidenomics takes both a near term and a very long-term view. So when we're talking about the bipartisan infrastructure law, the Inflation Reduction Act, the CHIPS Act, and I know you've done shows on all of those, we're talking about a long-term play here where if we get the implementation and the public-private aspects of those investments right, we have the potential to transform the economy very much in the spirit of Bidenomics: bottom up, middle out growth, right? A complete reversal from the trickle down approach that I think decades of evidence fails to support. So I do think there is a longer term view here that gets away from the, you know, headwinds and tailwinds of the day.
Tracy: (05:02)
So I'm glad you mentioned this because this sort of feeds into one of the criticisms that you sometimes hear about a more active industrial policy or, you know, Bidenomics, where investment — long-term investment — does take a more central role. And that criticism is that potentially you are pulling a lot of investment forward. So you're sort of front-loading CapEx and that maybe, you know, in the next downturn, which hopefully will be a long time from now, that maybe you won't have as much ammunition for this type of spending again. How would you respond to that?
Jared: (05:36)
Well, I think one of the very positive attributes of the Bidenenomics investment that we're seeing right now is the extent to which public investment, which does have a longer-term spend out, it's much smoother, is pulling in private investment, which as you suggest can be kind of lumpy. Part of that is because of the actual building, the sunk initial cost that takes that take place. When we are standing up a domestic semiconductor industry, when we're standing up a domestic electric vehicle, electric battery industry, when we're making these longer-term investments in clean energy.
So here's a way to think about that. If you look at the record on the prior administration of domestic spending on manufacturing facilities, so the construction of manufacturing plants, it flatlined for, you know, many years, I think it grew 2% real in the prior administration. That's up a hundred percent since the president took office. So that's a hockey stick kind of a figure.
And the Treasury Department put out a nice blog on that if you want to just post the figure on that. And what the Treasury folks did in their blog was they looked at where those manufacturing facilities, what sectors is that construction taking place? And it very clearly relates to the investments that are incentivized by the legislation that we've been talking about. So of course you're gonna see a big initial spend, but I think over the longer term, that smooths out and if we do it right, it keeps delivering in terms of domestic production and high quality jobs for American workers.
So Tracy, I want to comment on something you said. You guys talk a lot about industrial strategy policy. I'm not sure that this point has been made clearly enough though. You know, if it has, I'm repeating it, which is that yes, we certainly have, you know, a very clear conscious, visible elevated agenda in that space. Nobody's trying to be cute or hide any balls, but I also think that you cannot find a time in our economic history when there wasn't an industrial policy of some sort or another.
And you know, obviously you can go back to the beginning of our country and see a very clearly articulated industrial policy: Hamilton's manufacturing initiatives. But what I'm talking about is something much less positive than that. What I'm talking about is an industrial policy that is a function of who has the best connected lobbyist to get the tax code that they want.
And what you end up [with] in that kind of industrial policy is the deepest pocketed, best connected in many cases, most divorced from actual economic productivity initiatives are the ones that get the breaks, the funding, the tax credits, the attention. One thing you'd expect to have in that scenario is an outsized role for finance and, you know, what I call the shampoo cycle: bubble, bust, repeat . And you know, we've seen a lot of that. So I think that it's wrong to think that, you know, we sort of fell out of the sky with its industrial strategy and more correct to to view this as very intentional and I hope very thoughtful one
Joe: (08:49)
I want to ask about, you know, you mentioned the investment in structures and it is a hockey stick and we see the battery announcements almost every other day and the CHIP announcements almost every other day. What is next? And by ‘next’ I'm specifically [asking], what can you and the administration and the rest of the administration do to focus that what happens inside the plants actually happens in a cost competitive way? That good cutting edge batteries are made, that we compete globally, that good cutting edge chips are being made. What's next in terms of basically, yeah, guaranteeing that what's built inside these structures sort of delivers on the outside?
Jared: (09:27)
Well, the thing with capitalism is that there's no guarantees. The idea of, you know, the government sort of getting in there and saying, you know, “don't use this widget, use that widget” sounds kind of unappealing to me. I think the best thing for our industrial strategy and certainly the way I believe the president thinks about this, is that we create the environment and the conditions both in terms of capital investment, in terms of worker quality, and in terms of the ancillary functions, which I'll explain, that workers need to make this all work.
So the first thing is, there are deep market failures where private investors, because of risk-reward ratios being what they are, will under-invest in in critical sectors such as climate, such as batteries, such as more resilient supply chains here. And so our financing structures, and again, you've had lots of good conversations, you've had folks from the government on to talk about this, our financing structures have to tweak those risk-rewards so that we can get the investment we need. That's, you know, a pretty 30,000 feet up versus, you know, how can you be sure and get into the factory and make sure the chips are coming out the right way? But that's important.
And then secondly, we have to make sure that the workforce is empowered and educated. And that happens to be Pillar 2 of Bidenomics by the way, empowering and educating the workforce. And I think one, somewhat underappreciated part of CHIPS is the very significant resources in that bill to provide training for workers to come into these places — places, which by the way, and this might even be an Odd Lots show someday, places that are being stood up all across the country. This are my favorite aspects of Bidenomics and the investment agenda they're showing up in the southwest, in upstate New York, in Ohio and Tennessee and Oklahoma, in blue places and red places. You know the president has a joke: “I'll see you at the ribbon cutting” for people who didn't vote for the legislation, but show up to cut the ribbons. And I think that's great. I mean, I think that's the way to have the most productive economy, but where's it going?
The third part of your question, well, look, our care agenda is really important. This may sound divorced from what we're talking about, but it's not. Just like we announced earlier one of these weeks, they all mushed together for me. We're going to make sure that if you live in rural America, you have affordable high speed broadband. That is economic oxygen to people in those places. You can't participate without it.
I'd say the same thing about accessible and affordable childcare. That's something we have to work on going forward. It's in our budget. We have to. I think that's a great tool for us to work on, both in the context of helping people's personal budgets and their economies, their household economies, but also in this context to make sure people have access to the job market and to these good jobs.
Tracy: (12:16)
Well, Joe and I would be more than happy to do a Studs Terkel version of the show where we go on the road and talk to workers in new types of jobs. But just on that note, you know, Joe asked you about being cost competitive. How do you thread the needle between creating, for instance, a a semiconductor factory and also a semiconductor factory that's able to compete on a global basis, with empowering workers and making sure that workers are getting a fair deal. And the reason I ask that is because I think we just saw a headline that came out saying that there are some semiconductor firms that are talking about importing migrant labor rather than hiring locally in order to keep costs down.
Joe: (13:00)
And we know that for example, the United Auto Workers are concerned about wages and pay at some of the battery factories that are displacing the ICE factories.
Jared: (13:09)
I think this is very much a walk and chew gum kind of question. I think when it comes to the cost of production, we have a very conscious agenda to lower cost curves. And I think we're seeing some success there. We've seen cost curves come down, particularly in renewable energy where, you know, the President I believe said this in his speech in Chicago the other day, that some of the price points around renewable energy, given the increase in capacity in those sectors have come down to be, you know, quite competitive with traditional sources. I think we could say the same thing with chips. If our plans are able to be realized with the pace that they're on now, and that's just a very simple aggregate supply/demand chart where by increasing capacity, increasing supply, you help on the price side.
And then, you know, the other part is the job market. Look, we've had an unemployment rate that's below 4% for 18 months. A year and a half we've had, when you do that, you start seeing workers get a bit more bargaining clout, right? And that shows up in pay. And in fact, we're finally starting to see real wage gains as inflation begins to ease. And the job market remains strong.
We've now seen a year-over-year wage gain in the last jobs report, real wage gain, I should say, a year-over-year real wage gain in the last job reports. We now have real wages up a percent since last June. If you look for production non-supervisory workers, so blue collar workers, non-managers, that's 80% of the workforce, their pay is up 1.5% since last June. So interesting that it's up 50 bips more than the overall. That's a bargaining power story.
We have a blog on the CEA website showing gains for black workers, even closing some of the black-white gap a little bit because of the importance of that bargaining power, right? We have an economy that can do both of the above. That's the answer to Tracy's question, that can do both of the above. That can invest in productive capacity to bend cost curves while we run a tight enough labor market that workers are getting their fair share of the growth that they're helping to create.
And by the way, one of the ways that happens mechanically or arithmetically is by labor share of income getting back to, you know, some of its historical average. It's been pretty depressed lately. And that's actually a non-inflationary way of paying for higher real pay is through a higher labor share.
Joe: (15:52)
Can you talk about international trade under the Bidenenomics framework? And I'm thinking specifically about some of the frustrations from of our friends and allies in Europe about some of the rules that were put in place with the Inflation Reduction Act and how you think about that relationship? And, you know, what is the Bidenomics stance on how we relate to our trading partners?
Jared: (16:12)
Yeah. One of the things I get to do as chair of the CEA is I chair something called the Economic Policy Committee of the OECD. And we recently had a meeting over there and I was talking to folks in my position in many different, you know, many other countries. And it was a very good, robust discussion about this point.
I think there's actually a lot more commonality, a lot more agreement that we're all engaged. Many of these economies we're talking about. If you look at their policy agendas, we're all doing some version of the same thing. And it's exactly what we've been talking about in our investment discussion. And in fact, in many cases, Europe's been doing this for a lot longer than we have. You know, industrial strategy was not a bad couple of words over there. I would say longer than has been the case here.
And the idea is to, I think, promote more spillovers than sort of head-to-head competition. If we can help lower the cost curve for producing the components of clean energy economy, components of electric vehicles. Yes, of course there's going to be competition, but there's also going to be, I think, some cooperation and some benefits from the increased capacity that we have here.
Let me give a concrete example. If you're making a battery here, you're making it here. And if you follow the President's plans, you're creating good union jobs for folks to do that here. But nature, in her wisdom put the components of electric batteries under the earths of many different countries, and most of them aren't this one. I think there's some some of that up in Alaska, but you're going to be getting those intermediate inputs from other countries.
So I think one mistake that's been made in this discussion is somehow assuming that our international trade policy is leaning towards autarky and, you know, far less in terms of trade flows. That is demonstrably false. If you look at the trade flows themselves, which have been quite robust. I mean, I try to point people, just do a couple clicks, and you'll see we engage in robust trade.
But I would say, you know, what really frames our thinking about this differently is we don't look — under Bidenomics, we don't look at Americans as consumers 100% full stop. We recognize that they and their communities are also working people, workers who depend on domestic production getting good jobs here.
If all you thought about was consumer spending, you'd say, “Let me import everything to try to increase the supply and lower the price.” If you thought about consumers, people are consumers, but they're also workers, you'd think about both. And you'd say, “Yes, we want robust trade flows. Yes, we want to work with our partners to lower the costs of, of goods that are so critical for our future, but we also want to have good jobs here.” And we don't want to hollow out our communities. So I think that's really the way to think about the package.
Tracy: (19:09)
Just going back to the investment side of Bidenomics and I guess differentiating between bad industrial policy versus smarter industrial policy, you mentioned the idea of, you know, potentially money or power being concentrated in the hands of a few firms, and I know that anti-monopoly measures are of interest and a big plank of the Bidenomics agenda. So does this type of ramped-up public investment, does that need to go hand in hand with stronger anti-monopoly measures? And what are you thinking on that front?
Jared: (19:47)
I think it does, and I think — that happens to be Pillar 3 of Bidenomics by the way — which is promoting competition both to lower costs and to give smaller businesses a seat at the table, a chance to leap over some of those anti-competitive barriers that you were just kind of alluding to.
In terms of what it means, it's really everything from some very granular stuff to getting some competitive cops back on the beat. So on the granular side, you've seen a President who's come out strong against junk fees, who has implemented anti-overdraft initiatives. I was talking to the President about this the other day and he reminded me about a famous case, I know Aaron Klein at Brookings talks about this, of this banker who had, who had a boat that was called “overdraft.” He had a yacht and he had named it “overdraft.”
That was something, something that does not sit well with with President Biden. And so he took an action that's saving consumers five and a half billion dollars a year on overdraft fees. You know, non-competes, which I think you've probably talked about, or I'm sure you know what I'm talking about. The idea that workers come out from these really non-competitive, non-compete clauses and to allow them to get jobs in the same or similar industries where they were in a way that doesn't do anything to hurt company disclosures or anything like that. So that's the granular side of that equation.
I think the other side, which, there are other people who could talk about it, you know, more thoroughly than me, is just having the FTC back on the beat. And you've seen lots of action there. I think it's fair to say they're an independent regulator, just like the Fed. So we don't like to get up in there knitting. But I think it's fair to say that they have taken this kind of view very seriously, the idea that when too many of your industries — retail, healthcare, technology — are so concentrated that's non or anti-competitive, they've taken that seriously and they're actively working to fix the damage in a way that I think is impressive.
Joe: (21:47)
We just have about a minute or two left with you. You know, obviously for the remainder of this particular term, Republicans control Congress, so the legislative window is probably not particularly wide open. I'm just curious, what active is there that you're working on specifically, whether it's still trying to push through legislation or on the sort of administrative regulatory side that we should be watching for?
Jared: (22:08)
Well, I think that, so first of all, we have to do both. And I'm not going to talk about student debt because we’re going to let the President talk about that first, but that remains something he's been committed to since the campaign, helping people there. And you know, we have a lot of plans in that space, some of which are not as well known as they should be. In fact, I'd like to nudge you to do a show, not necessarily with me...
Joe: (22:29)
We appreciate all the show suggestions by the way….
Jared: (22:32)
Yeah, I should be one of your editors. Our new income driven repayment plan. That is something people really need to learn a lot about. And I'd love you guys to dig into that. It's a great plan. We have people here who can help explain it to the audience in a way that I'm sure people would find compelling. So, you know, there are things we can do on the admin side, the rule side, but I think the more fulsome answer to your question is to look at our budget.
Our budget is where we put the ideas, the policy agenda that the President believes is most important. And while people always say, “oh, the President budget isn't going anywhere,” In fact, the truth is that the history of of presidential administrations, they always pull ideas out of their budget. And, you know, if they're good and President Biden has shown that he's better than good when it comes to getting tough things over legislative goal lines. That's the place to look.
Now the care issues that we talked about earlier, childcare, elder care that's in there. We have a really important housing agenda. We have a housing supply — structural, not cyclical — housing supply shortfall for affordable housing in this country. We have really great ideas, many of which by the way, people on sort of both sides of both builders and people who want to be homeowners would appreciate.
So look at our housing agenda. And then there's the fiscal agenda. Look, in order to maintain a sustainable fiscal policy, the President has been very much devoted to lowering the budget deficit by trillions of dollars. Much of that is on the books, but a lot of that is in the budget. And it does two things. We promote fairness in the tax code by finally getting folks at the top — over $400,000. No tax increase, no audits for people under $400k — but for people over $400k you know, some of our wealthiest people, the President likes to point out pay an 8% effective tax rate, and that's just not fair.
So look, of course we have an anti-tax evasion agenda, which means getting the IRS the resources they need and we're going to keep pushing that. Some of that came out of the debt deal, but we're going to keep pushing that. But we also have agenda for, you know, high-end progressive taxation, which, just to circle back to kind of where we started is, you know, Bidenomics, bottom up, middle out, grow the economy, that's the opposite of trickle down. Trickle down, you know, you cut taxes for the rich and somehow hope that that magically — against decades of evidence — lifts the middle class. It doesn't. So Bidenomics reverses that, achieves a stable fiscal path by injecting some real fairness into the tax code while not touching anyone under $400,000.
Tracy: (25:12)
May I ask just one more question? It's a quick one. I think you'll enjoy answering it, but you've obviously been working with Biden for a long time back when he was vice president as well. How does he think through these issues? You know, when you and he get together, what kind of questions does he ask you?
Jared: (25:30)
It's not a simple, quick question and I do have to go. I'll give you, here's what I'll, here's what I'll tell you. This has been my experience and okay, I'm going to unpack this a little more than I have time for, so I apologize to the people I’m keeping waiting...
Tracy: (25:44)
No, we appreciate it.
Jared: (25:45)
Yeah. When I talked to Joe Biden in December of 2008 and he was trying to decide if I should be his chief economist, I sit down with him, it’s his Delaware house, he reaches into his jacket pocket and he pulls out a graph that I had made with Larry Mishel that showed GDP going up and middle class incomes flatlining. And he pointed to the gap between those two and he said, “Jared, this is what we're gonna work on.”
The idea that the economy was growing and the middle class was falling behind is unacceptable to him. And that is the core value at the heart of Bidenomics. If I run into the president's office today and I say, “Sir, GDP did great in this quarter, or the stock market’s up,” he's like, “Jared, stop wagging your tail and explain to me how that's reaching the middle class. How that's building the ladders for people who aspire to be in the middle class. What's the connective policy tissue that's missing because that's what we're going to work on.”
Because if the economy is growing and the middle class lower income people are falling behind, that's not okay with this president. And Bideneomics is another way of saying the economic agenda to close that gap.
Joe: (26:59)
Jared Bernstein, so great to have you on. Really appreciate it. Really appreciate you taking the time and we will be following the trajectory of Bidenonomics
Jared: (27:08)
Okay. Take care.
Joe: (27:09)
Thank you so much. Tracy, I love you using the classic lawyer tactic there of asking a very interesting question right at the end of time, knowing that he would have some, you know, he wouldn't be able to resist.
Tracy: (27:30)
He can't resist..
Joe: (27:31)
But I really appreciate Bernstein coming on the show.
Tracy: (27:35)
No, totally. And it was a very good overview of the key planks of Bidenomics. So public investment, pro-worker and anti-monopoly, I think he said. But I do think maybe the difficulty in messaging is that it feels like the Biden administration wants to take credit for a strong labor market while also backing away from some of the inflationary pressures. And that feels like a little bit of a difficult needle to thread. But that said, you know, here we are in 2023 and things certainly have not been as bad as a lot of people were predicting just last year.
Joe: (28:18)
No, I mean, definitely not. I mean inflation has not come down as fast as people might have guessed, but on the other hand, everyone...
Tracy: (28:25)
Unemployment!
Joe: (28:25)
But unemployment’s sub-4%. And I thought that was interesting, you know, speaking of tensions, the UAW is concerned about wages at battery plans and there's a pretty big question of, okay, to Jared Bernstein's point, in a hot labor market environment, you can expect wage gains, you can expect labor share of income. Whether you can get back to the wages that the UAW has set at legacy automakers and legacy ICE plants for years and years accumulated through negotiations and negotiations and strikes and pressures through that hot wage, through a hot labor market, I do think is highly TBD. And I do think watching that relationship unfold, especially, you know, as he said, a lot of these new plants are gonna be in red states where they don't have these strong labor protections is going to be a pretty interesting tension for the next couple of years.
Tracy: (29:15)
Yeah. Well there are so many tensions here. One of the big ones is delivering short-term results on inflation and employment while trying to fix very long-term structural supply-side issues. And I’ve got to say like from that perspective, A) it's ambitious and I kind of appreciate someone trying to take that on. But B) for now, again, it seems to be working. I guess the big question mark is what happens in, you know, a decade's time?
Joe: (29:42)
I appreciate that he wants to give us suggestions and maybe he'll have a career working along with Carmen [Rodriguez] and Dash[iell Bennett] as one of our producers one day. Wouldn't that be cool?
Tracy: (29:50)
Carmen says he’s welcome to become an Odd Lots producer. Thanks Carmen. All right. Shall we leave it there?
Joe (29:52)
Let's leave it there.
You can follow Jared Bernstein on Twitter at @econjared46.